Shopify shares pop on Bank of America upgrade to Buy

Shopify (SHOP) stock is jumping Tuesday morning following an upgrade from Bank of America. The firm has raised its rating on the e-commerce platform to Buy from Neutral and increased its price target to $82 from $78. Analysts believe Shopify’s revenue growth alongside its disciplined approach to spending will create improved margin growth in the coming quarters.

Morning Brief co-hosts Seana Smith and Brad Smith break down the details.

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This post was written by Angel Smith

Video Transcript

All right, Shopify share is getting a boost after Bank of America upgraded the stock to buy from neutral raise its price target to 82 bucks from 78.

The analysts behind the call saying quote revenue growth and discipline spending point to healthy margin expansion going forward.

They called out the fact that under their new CFO that Shopify has made a number of, I guess or taken a number of steps in the right direction, turned a quarter on balanced growth on margin here going forward saying that they do see solid revenue growth, free cash flow conversion also improving there.

So because of all that, I guess they’re pretty bullish on what the outlook here at least or what the road ahead looks like.

For Spotify, we are looking at year to date losses of just about 17.5%.

So they are making the bet.

We’re going to see a bit of a turnaround there in shares.

This is a huge story for Shopify and here’s why I mean, if all your social media companies are essentially the new mall where discovery happens digitally for a lot of potential concern out there or those who are trying to find inspiration and then conversions Act on that inspiration and make purchases.

Shopify is very intertwined within that experience and it very well could be the new major purchase uh and point of sale operator here that we’re continuing to see grow upon what it’s already been able to do.

Now, the key thing that they’re calling out within this is free cash flow.

The company talked about this in their most recent earnings call.

They expect that free cash flow margin to be similar the first quarter of 2024.

But this analyst is actually expecting upside to Q two revenue growth of 23% pointing specifically to better scale and free cash flow conversion here.

So ultimately, that’s the number, that’s the figure to track.

Once we hear from Shopify this particular earnings period here, once they uh give us those results that not expected for a little bit of time here, we’re early innings in this earnings season very early, just getting through the banks still going.